We expect the competitive intensity in the sector to remain elevated, with the market likely to get a possible short-term reprieve from the delay in TPG’s commercial rollout.

Broadly, the pressure on the industry’s MSR should continue in 2019 with rising adoption of SIM-only plans, the extended smartphone replacement cycle, and the possibility of more MVNOs coming on board.

Waiting for landfall.

ASX-listed TPG (TPG AU) reported SGD66.7m cash capex for its Singapore mobile rollout for FY18 (Jul) (including SGD4.4m in FY17). The amount is significantly below the SGD200-300m guidance made in late 2016 for outdoor coverage, and may raise questions as to its Singapore rollout commitment and its ability to meet the onerous conditions set by the Info-communications Media Development Authority (IMDA) ie outdoor coverage of 95% (by end-2018), to be followed by road-tunnels and in-building coverage (end-2019) and underground MRT stations (end-2021).

Interestingly, at TPG’s FY18 results announcement in September, management highlighted that: it is on track to meet outdoor coverage requirements by end-2018, its production network already covers in excess of 90% of outdoor areas, and the capex outlook is still in line with its initial forecasts.

TPG also awaits regulatory approval for the merger of its Australia business with Vodafone Hutchison Australia. This could divert management’s resources, in our view, and be a distraction to its Singapore aspirations.

Incumbents have hedged their bets well with aggressive re-contracting offers and a data-led/MVNO strategy.

As all three incumbents are utilising MVNOs to “hedge” against market share losses, TPG would have less room to manoeuvre and grab market share, in our view. Realistically, we think TPG’s network would be inferior in the medium term.

There are five MVNOs in the market – two hosted by SingTel (ZeroOne & Zero Mobile), one each on StarHub (SGX:CC3) (MyRepublic) and M1 (SGX:B2F) (Circles.Life). We do not rule out more MVNOs entering the fray.

MSR should remain under pressure in 2019.

We expect the industry’s mobile service revenue (MSR) to remain under pressure from: stronger take-up of SIM-only plans, extended weakness on usage/roaming revenues, and competition. While SIM-only plans are still small relative to the overall subs base, they are rising rapidly and would make up an estimated 10-15% of total subs by end- 2019.

Higher data inclusions and upsized data plans would also lend further pressure on data yields and ARPUs.

NEUTRAL rating maintained.

The sector valuation of 9x FY19F EV/EBITDA is at 1.5SD below its 5-year historical mean of 11x, which we believe has priced in downside risks from the new entrant (TPG).

The FTSE Straits Times Telecommunications Index (FSTTC) has also underperformed the STI by 8-16% over the past 12-15 months, with the telcos’ attractive prospective dividend yields of 4-6.5% providing some share price support.

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